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How will Mexico's new president handle policy shifts and US uncertainty?

Mexico’s new president Claudia Sheinbaum faces weak growth, a controversial reform agenda inherited from her predecessor and US election uncertainty. The government may slow the pace of constitutional changes, but much of the agenda will ultimately be pursued. Investor concerns regarding the country’s institutions risk stymieing potential gains from “nearshoring”.

Authors
Tettey Addy
Emerging Markets Economic Analyst
Robert Gilhooly
Robert Gilhooly
Senior Emerging Markets Economist

Duration: 1 Min

Date: Oct 04, 2024

Key Takeaways

  •  Uncertainty has been rising sharply in Mexico since June, when new president, Claudia Sheinbaum, was elected and the Morena party won a landslide victory. 
  • This is due to increased investor scrutiny of the reform agenda she inherited from Andrés Manuel López Obrador and market concerns about the US.
  • Following the approval in September of one of López Obrador’s main proposals – the judicial reform – investors await details on what shape other proposals may take. 
  • Sheinbaum’s administration may slow or limit the scope of changes to appease investors, particularly if the US election results spark renewed market pessimism.
  • However, we ultimately expect the government to carry out the flagship components of López Obrador’s agenda before Mexico’s mid-term elections in 2027.
  •  Muted short-term growth will hamper fiscal consolidation over 2025, posing additional risks for investor sentiment.
  • We expect Banxico to lower its policy rate by a further 50bps to 10% by year-end. The rate path over 2025 will depend on the US election outcome, with a Harris victory providing greater room for stimulus than a Trump win.
  • Over the medium term, Mexico will likely benefit from “nearshoring” due to its connectedness with the US. 
  • That said, investor caution regarding the rule of law and USMCA compliance risks stymieing future FDI inflows. 

    Read the full article. 

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